IV. The Proposed Modification Should
Be Approved Because It Is in the
Public
Interest................................................................................................................. 45

A. The Public Interest Standard Applies to Entry of the Proposed
Modification........................................................................................................
45

B. The Proposed Modification Is In the Public
Interest.......................................... 47

1. The Proposed Modification Is Structured to Avoid Harm to
Competition in the Interexchange
Market.............................................. 47

2. The Trial Will Provide Affirmative Benefits to
Competition................. 47

In the matter of the Application of City Signal,
Inc., for an Order Establishing and
Approving
Interconnection Arrangements with
Ameritech
Michigan, No. U-10647 (Mich.
Pub. Serv. Comm'n,
February 23, 1995)
................................................................................................................. 16

William J. Baumol, Affidavit submitted
by AT&T with its Opposition to
Original
Proposal
.................................................................................................................................... 4

Lawrence A. Sullivan, Affidavit submitted by
AT&T with its Opposition to
Original Proposal ................................................................... 17

David A. Teece, Affidavit submitted by
Ameritech with its Original Proposal
.................................................................................... 31

David A. Teece, Affidavit submitted by
Ameritech with Reply Memorandum
in Support of its Original Proposal
........................................................................................ 31

.

Page 1

IN
THE UNITED STATES DISTRICT COURT
FOR
THE DISTRICT OF COLUMBIA

UNITED STATES OF AMERICA,

Plaintiff,

v.

WESTERN ELECTRIC COMPANY, INC.,
et al., and

AMERICAN TELEPHONE & TELEGRAPH COMPANY,

Defendants.

)
)
)
)
)
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)
)
)
)
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)
)

Civil Action No. 82-0192 (HHG)

MEMORANDUM OF THE UNITED STATES IN SUPPORT OF
ITS MOTION FOR A MODIFICATION OF THE DECREE
TO
PERMIT A LIMITED TRIAL OF
INTEREXCHANGE SERVICE BY AMERITECH

The United States has moved for a
modification of the Decree in this case to permit a limited
trial of interexchange service by Ameritech. As explained in the
Preliminary Memorandum filed
with that motion, the trial would begin only when Ameritech faces
actual local exchange
competition and there are substantial opportunities for more such
competition; would be limited
to certain geographic areas within the states of Illinois and
Michigan; and could be terminated if
Ameritech violates the order governing the trial or if it can no
longer establish the absence of any
substantial possibility that continuation of the trial would impede
competition. The United
States, Ameritech, and AT&T have stipulated that the proposed
order filed with the motion is in
the public interest and have consented to its entry under Section VII
of the Decree.

The Preliminary Memorandum
outlined briefly the terms and conditions of the proposal.
This Memorandum provides a more detailed explanation of the
purpose, history, and structure of
the proposed modification and the reasons why it should be
approved.I. Purpose and
General Structure of the Proposed Modification
The proposed modification is both
more limited and more profound than most requests for
removal or modification of the Decree's line of business restrictions
that have previously come
before the Department of Justice and the Court: more limited
because it proposes only a
circumscribed trial of an otherwise prohibited service, not a
permanent lifting of the restriction
for some category of service; more profound because it would take
affirmative steps toward
understanding and achieving the conditions that might render
unnecessary one of the most
fundamental and important restrictions of the Decree.
The proposal contemplates a
three-stage process. First, the motion and proposed order
present to the Court the rules under which the proposed trial would
be conducted, and seek a
determination that they are in the public interest. Second, before
any interexchange service could
actually begin, Ameritech would have to take certain steps to open
local exchange service to
competition, and the Department of Justice would have to
determine that competitive conditions
in the marketplace, in conjunction with the other safeguards in the
order, ensure that there is no
substantial possibility that commencement of the experiment could
impede competition in
interexchange service. (Proposed Order, ¶¶ 9-11.) Third, after
interexchange service begins,
Ameritech would be subject to certain post-entry safeguards,
including all existing equal access
requirements, and the Department would supervise the trial and
could terminate it if conditions
required. (Proposed Order, ¶¶ 15-17.) The Court would retain
discretion to take any necessary

Page 3

actions at any point, including review of any determinations made
by the Department. (Proposed
Order, ¶ 51.)
This three-stage process recognizes
that the transition to competition in local exchange
services will be complex. No set of conditions for promoting such
competition could hope to
address in advance the dozens of complicated implementation
issues that will have to be resolved
before meaningful competition is a practical reality, rather than
merely a theoretical possibility.
As local competition develops, and as industry and regulators gain
experience with ensuring the
competitiveness of markets that depend on access to local exchange
services when the principal
local exchange carrier is a participant in those markets, it may be
possible to relax some of the
post-entry restrictions, and the proposed order makes provision for
such modification. (Proposed
Order, ¶ 17.)
The process that the proposed
modification would establish will help the Department, the
Court, the telecommunications industry, and the public to gain
practical experience and develop
real marketplace facts about (1) the extent to which
telecommunications markets can become
fully competitive so that Decree restrictions might become
unnecessary and (2) short of such
fully competitive conditions, what combination of competition and
safeguards might be
sufficient to enable the Regional Bell Operating Companies
("RBOCs") to enter the market for
interexchange services without harming competition in that
market—all in a setting that does not
threaten substantial harm to competition in the interexchange
market. Equally important, the
Department believes that the same process will itself hasten the
development of competition for
local exchange services. It will encourage the states that are
working to open up local exchange
services to competition. And it will establish a mechanism to
identify, understand, and address

the many implementation issues that will arise in the transition to
competition in local exchange
markets.II. Development of
the ProposalIII. Technological and Competitive Developments
Technological changes in recent
years have raised the possibility that the scope of the natural
monopoly in local telephone service may be subject to erosion.1 For example, in
many densely
populated urban areas, Competitive Access Providers ("CAPs")
have laid their own fiber optic
networks to serve large business customers. At present, those fiber
networks are principally used
to provide exchange access, either by supplying a direct link from
the customer's premises to the
point of presence ("POP") of the interexchange carrier ("IXC"), or
by supplying only the
transport from the central office or tandem switch of the local
exchange carrier ("LEC") to the
IXC's POP. Those same fiber networks, under the right
circumstances, might be able to be used
to provide "dialtone"—i.e., local exchange service. Indeed, two
CAPs—MFS and
Teleport—have already obtained certificates from the Illinois
Commerce Commission to operate
as local exchange carriers in Chicago, and another CAP, U.S.
Signal (formerly known as City
Signal), has obtained such authority to serve Grand Rapids.2 Similarly, as cable
television

systems make greater use of fiber optics, those systems may also be
able to provide both dialtone
and access.3 Although competition from CAPs has just begun to develop
(and competition from
cable companies remains largely a theoretical possibility), these
technological developments
raise important questions about the possible future extent of such
competition.IV. Ameritech's Original Proposal
Based in part on these technological
changes, Ameritech filed with the Department and
circulated for public comment a waiver request under Section
VIII(C) of the Decree, seeking
complete removal of the interexchange prohibition, or in the
alternative, a waiver of the
prohibition to conduct statewide trials of interexchange service in
one or more states. It premised
that request partly on the notion that the technological changes
described above, plus
developments in Federal Communications Commission ("FCC")
regulatory tools and policies,
were enough to constrain any possible anticompetitive conduct.4 At the heart of its
request,
however, was what it called its "Customers First Plan"—its proposal
that it would take certain
steps and seek certain state regulatory changes that would open up
the local exchange to
competition.
To understand the significance of the
steps outlined in the Customers First Plan, it helps to
consider some of the principal barriers facing potential entrants into
local exchange service.

First, there are substantial legal barriers to entry in most markets.
Until quite recently, the
underlying assumption of telecommunications regulation was that
local exchange service is a
"natural monopoly" that should be provided by one entity, subject
to government regulation.
Thus, states strictly prohibited entry into local telephone service by
competitors, often granting
monopoly franchises to a single company in each market.5 Even where states have
taken steps to
end prohibitions on entry by competitors, potential entrants have
sometimes had difficulty
obtaining required certification from state regulators.
Second, even as legal and regulatory
barriers come down, a substantial barrier remains if
entrants must replicate the entire network of the LEC in order to
provide local exchange service. SeeUnited States v. Western Elec. Co., 673 F. Supp.
525, 544-45 (D.D.C. 1987) ("The
conditions that caused these monopolies to emerge in the first place
. . . preclude any thought of a
duplication of the local networks."), aff'd in relevant part,
900 F.2d 283 (D.C. Cir.), cert. denied,
498 U.S. 911 (1990).
Third, a fundamental characteristic
of telephone markets—the existence of network
externalities6—requires that any entrant be able to offer its customers the
ability to make calls to
and receive calls from the incumbent's customers. Because a large
portion of the value of

telephone service for a particular user depends on that user's ability
to contact other users, the
incumbent's ubiquity is an insurmountable barrier to competition,
absent mechanisms for
effective interconnection of networks.
Ameritech's original Customers First
Plan had three basic components. First, Ameritech
promised not to oppose certification of local exchange competitors
and to waive any exclusive
franchise rights it had "if the interexchange restriction is removed,
and if state and federal
regulators adopt the other reforms proposed [by Ameritech]."
Ameritech Memorandum in
Support of Motions to Remove the Decree's Interexchange
Restriction ("Ameritech's Customers
First Memo") at 36 (filed with the Justice Department on Dec.
7, 1993) [Appendix, Tab 6].
Second, Ameritech offered what it characterized as "unprecedented
interconnection at the local
level," id. at 4, which would "enabl[e] [competitors']
customers to originate and terminate calls
on the same basis as Ameritech customers, without dialing access
codes or waiting for a second
dial tone," id. at 37. Third, the Plan, Ameritech claimed,
"thoroughly unbundle[d] Ameritech's
network for resale." Id. at 38. This unbundling was
designed to "enable competitors either to
provide for themselves, or to procure from Ameritech, any facilities
or functions they require,
either one at a time or in any combination," thus obviating the need
for competitors to replicate
Ameritech's entire network. Id.
In sum, Ameritech argued, the
Customers First Plan "does away with legal barriers to entry
by rejecting ‘first in the field' regulation, and . . . tears down
economic barriers to competition by
allowing full interconnection and resale." Id. at 40.

. . . . . . . . . . . . . . . . . . . . . . . . .1.
Inadequacies of Ameritech's Original Proposal The Customers First Plan as originally proposed
represented an innovative and significant
step in the right direction, because it acknowledged and sought to
remove many of the barriers to
local competition. But the Department recognized, and stressed in
subsequent negotiations with
Ameritech, that the plan neither resolved all the issues involved in
breaking down those barriers,
nor contained adequate safeguards against Ameritech's impeding
competition in the
interexchange market before those barriers were fully identified
and eliminated. It thus fell short
of Ameritech's claims in numerous respects, of which the following
are illustrative.
To begin with, the original proposal
assumed that local competition would automatically
flow from eliminating the legal bar to such competition and from
the theoretical availability of
interconnection and unbundling. "No more needs to be done to
enable and encourage
competition for local exchange service." Ameritech's Customers
First Memo at 40 [Appendix,
Tab 6]. The Department concluded otherwise, however. The terms
and conditions of
interconnection and unbundling are critical. For example,
Ameritech argued that its unbundling
proposal obviated the need for competitors to replicate the "loop"
that connects the subscriber's
premises to Ameritech's central offices. With unbundling, such
competitors could connect
Ameritech loops to their own "ports" (i.e., switches and other
non-loop elements of local
exchange service) by running trunks from their central offices to
Ameritech's central offices.
But if loops are priced too high in relation to the retail price of the
bundled local exchange
service, it will be uneconomic for even the most efficient
competitor to connect Ameritech loops
to the competitor's ports in order to offer service in competition
with Ameritech. One therefore
cannot simply assume that competition will occur; the
Department must instead apply its

traditional expertise, evaluating the competitive state of markets in
light of actual market
conditions and experience.
Similarly, Ameritech argued that the
network externality problem would be solved if
Ameritech agreed to interconnect with other carriers, to terminate
traffic originating from a
competing carrier and destined for a customer on Ameritech's
network, and to send traffic to
other carriers when Ameritech subscribers wished to call
competitors' subscribers. But the
Department recognized that if Ameritech's prices to terminate calls
from subscribers of
competing networks to called parties on Ameritech's network are
unreasonably high, competition
could be seriously hindered. Indeed, in a decision rendered just last
month, the Illinois
Commerce Commission found that:
. . . Illinois Bell's proposal to charge
new LECs tariffed switched access rates
to complete local traffic on its
network would result in a situation in which
wholesale compensation rates would
be above retail market rates for a wide
variety of calls. In other words,
carriers would pay more in terminating
compensation to Illinois Bell than it
currently receives in revenues from its
local usage customers. . . . [S]everal
witnesses independently demonstrated
that in most cases Illinois Bell would
charge a new LEC more in access
charges than it would charge its own
local residential or business customer
for the entire usage service, making
it impossible for a new LEC to establish
a competitive price . . . .7

Implementation issues of this kind
are inevitable, and no one knows for certain whether, or
how soon, entry into the local market will occur on a significant
scale. Every scenario for the
emergence of competition assumes continuing dependence upon
Ameritech, at least for
interconnnection and in many cases for loops and perhaps other
network elements as well. This
continuing dependence means that competition will involve
complex business relationships and

Page 10

numerous pricing and technical issues, any one of which can make
competition infeasible. The
Department therefore concluded that Ameritech's original proposal
that it be granted
interexchange authority simultaneous with the formal lifting of
legal entry barriers and adoption
of regulatory reforms permitting unbundling and interconnection
was unrealistic. That proposal
offered no assurance that consumers would actually have
alternatives available to them upon the
adoption of such reforms, or that competitors would be able to
enter sufficiently quickly or
pervasively to prevent anticompetitive conduct by Ameritech. The
potential harm to competition
was particularly great in light of Ameritech's own argument that the
ability to offer a full range
of "one-stop shopping" services confers a great competitive
advantage. If true, giving Ameritech
such ability at a time when competitors cannot realistically offer
local exchange services would
tend to extend Ameritech's monopoly from local exchange services
to the interexchange market.
It is thus critical that actual marketplace conditions be examined to
test the true economic
feasibility of local competition before Ameritech is allowed to offer
interexchange services.
A second major flaw of the original
proposal was its failure to address the issue of number
portability. Customers are reluctant to switch to competing
providers if it entails the
inconvenience of losing their existing telephone numbers. For
example, a Gallup poll of
residential and business customers in 1994 found that 40-50% of
residential customers and 70-
80% of business customers who otherwise would consider
switching local telephone service
providers if alternatives existed were unlikely to consider such a
switch if they had to change
telephone numbers in order to so.8 The Department therefore concluded that number
portability

was an important issue that needed to be addressed if local
competition were to play the role
envisioned by Ameritech's plan.
Third, the original Customers First
Plan did not address competitors' access to poles,
conduits, and rights of way. Entrants who wish to lay wire
networks face formidable obstacles in
obtaining rights of way, problems that the incumbents historically
have avoided through use of
public condemnation powers and that new entrants might be able to
avoid by obtaining access to
existing poles and conduits. Discussions between the Department
and Ameritech led Ameritech
to agree to make access available to the extent such access was in
Ameritech's control, so as to
provide the best possible opportunity for the Ameritech trial to
succeed.
Fourth, the original Customers First
Plan gave Ameritech excessive latitude to market its
interexchange service through its local exchange
operations—through which the overwhelming
majority of existing customers get their local phone service and
which is usually the first place
that new customers call when they need to get phone service. The
Department concluded that
this latitude would have provided Ameritech's interexchange
business a tremendous advantage
over other interexchange carriers, attributable only to its position as
the monopoly provider of
local exchange service.
Fifth, although the original proposal
would have prohibited Ameritech from using the
Customer Proprietary Network Information ("CPNI") gained in the
course of providing access to
competing interexchange carriers, it would have allowed Ameritech
to use CPNI gained in
providing local exchange and intraLATA toll service in marketing
its own interexchange service.

The Department concluded that this would give Ameritech a
significant advantage based on its current position as the monopoly
provider of local exchange service.
Sixth, the original proposal did not
require that Ameritech provide interexchange services
through a subsidiary separate from its local operations. Although
separate subsidiary
requirements are imperfect instruments, the Department believes
they will nonetheless be useful,
both to regulators trying to ensure that Ameritech does not
cross-subsidize or discriminate, and to
the Department in supervising the trial and evaluating its
results.
Seventh, Ameritech's original plan
included departures from equal access. For example, it
would have allowed Ameritech to put interexchange routing
functions in its local switch for its
own interexchange traffic but not for that of competing IXCs. The
Department concluded that,
in the absence of a truly competitive marketplace, this would make
it virtually impossible to
prevent cross-subsidization and discrimination.V. Revision of
Ameritech's Proposal
The proposed modification presented
to this Court differs substantially from Ameritech's
original proposal, suffers from none of the deficiencies identified in
that proposal, and offers far
more procompetitive potential and far fewer anticompetitive risks
than that proposal. It is the
product of thousands of hours of work over the past year by the
Department as well as by
Ameritech, state regulators, potential competitive local exchange
carriers, long distance carriers,
consumer groups, and others who filed several rounds of public
comment on several versions of
the proposal and engaged in intensive discussions with the
Department. The Assistant Attorney
General for Antitrust participated directly in many of these
discussions and in the crafting of
language for the proposed order, reflecting her strong personal
commitment to the purposes of
the 1982 Decree and to competition in telecommunications
markets. Thus, although Ameritech's

Page 13

original proposal shares with the current proposal the important
concept of taking steps to open
the local exchange to competition as a predicate for removing the
interexchange line of business
restriction, the two proposals are otherwise far different. The
current proposal is in every sense a
joint product of the Department of Justice, Ameritech, and all of
the parties that filed comments
or participated in these discussions. The principles embodied in
the current proposal have the
support of AT&T, a decree party and major competitor in the
interexchange market; Sprint, also
a major interexchange competitor; CompTel, a trade association
representing more than 150
competitive interexchange carriers and their suppliers; America's
Carriers Telecommunication
Association ("ACTA"), a trade association of smaller
interexchange carriers; MFS
Communications, Time-Warner Communications, and Electric
Lightwave, Inc., three providers
of competing local exchange service in various parts of the country;
the Association for Local
Telecommunications Services, a trade association of competing
providers of local exchange
services; and the Consumer Federation of America and Consumers
Union, two major consumer
groups.VI. Detailed Explanation of the Competition-Based
Criteria and Safeguards in the
Proposed Modification
At the heart of the proposed order is
the premise that various steps are being taken by
Ameritech and the state regulatory commissions in Illinois and
Michigan, and that these steps
will likely lead to competitive conditions that make it both safe and
desirable to allow
Ameritech, on a trial basis, to offer interexchange services in
certain portions of those states (the
"Trial Territory").9 Because those competitive conditions have not yet been
achieved, the

proposed order contemplates a multi-stage procedure, under which
the actual trial of such
services will not begin until Ameritech presents facts from which
the Department can determine
that such competitive conditions do, in fact, exist. The process by
which that determination is to
be made is set forth in paragraphs 9-11 of the proposed order. That
process has two parts. First,
Ameritech begins the process by certifying that certain required
steps have, in fact, been taken to
open local exchange service to competition, and by filing a
compliance plan dealing with equal
access, separate subsidiary provisions, and other post-entry
safeguards. The Department will
then investigate, take any necessary discovery, and make a
determination, reviewable by the
Court, as to whether there is sufficient competition and other
sufficient assurances against harm
to the interexchange market that the trial may safely begin.
The proposed order also contains a
number of post-entry safeguards and gives the
Department the responsibility of supervising the course of the trial.
If Ameritech violates the
order or otherwise engages in anticompetitive conduct, the
Department can require it to cease
such conduct, ask the Court to impose civil fines, or terminate the
trial.
The required steps to foster local
competition, the standard for the Department to determine
that the interexchange trial should begin, the post-entry safeguards,
and the Department's
supervisory responsibilities are described below.VII. Steps to Foster the Emergence of Local Competition

Paragraph 9 of the proposed order
lists a number of developments with respect to local
exchange competition that must occur before Ameritech can apply
for authority to begin
interexchange services. By design, the order does not specify in
every detail the precise terms
and conditions on which these developments must take
place—matters that are in the purview of

the state regulators, and with which the regulators in the two trial
states are already grappling in
their efforts to foster competition. There are many issues that
remain to be resolved, and it is for
the states and the market participants, not the Department, to
resolve them. On the other hand,
the way in which those issues are resolved may have an extremely
significant effect on
competitive conditions, as may a variety of other technical and
economic factors, some of which
may be beyond the control of the regulators. The Department's
traditional area of expertise, of
course, is in evaluating the competitive structure and behavior of
markets. Under the proposed
order, therefore, the state regulators and the Department each
discharge their traditional types of
responsibilities: the states are already in the process of determining
the terms and conditions
under which the steps set forth in paragraph 9 will take place, and
the Department, under
paragraph 11 of the proposed order, will concern itself with the
resulting competitive
circumstances, and with whether those circumstances and other
safeguards are sufficient to
ensure that a trial of Ameritech interexchange entry will not harm
interexchange competition.
The specific steps required by
paragraph 9 of the proposed order are as follows.

. . . . . . . . . . . . . . . . . . . . . . . . . . .1.
Unbundling of Loops and Ports
As discussed in Section II.B,
unbundling of loops and ports is important to local competition
because it obviates the need to replicate the LEC's entire network
of distribution facilities.
Outside of dense downtown areas, a portion of that network—the
loop connecting the customer
premises to the main distribution frame in the central office—may
well exhibit natural monopoly
(or at best, duopoly) characteristics for some time to come.
Unbundling is intended to address
the natural monopoly problem, but whether it does so successfully
or not depends heavily on the
pricing of the unbundled loops and on other terms and conditions
such as the speed and

reliability of provisioning and repair. (See Section II.C.) The
proposed order recognizes this
dependence and deals with it through a collaboration between the
Department and the
appropriate state regulatory authorities, whereby each entity acts
within
its sphere of expertise. Thus, the state regulatory authorities will
regulate the pricing of loops
and ports.10 For Ameritech to be authorized to begin interexchange
service, however, the
Department will have to investigate and determine, among other
things, that
regulatory developments (including .
. . the terms and conditions thereof) and
market conditions offer substantial
opportunities for additional local
exchange competition . . . .

(Proposed Order, ¶ 11(b)(ii).) Because the proposed order bases
entry into interexchange service
on an assessment of marketplace facts about competitive conditions
at the time of decision, it is
unnecessary to resolve the pricing issue—or most of the other
myriad and perhaps unforeseeable
implementation issues—in advance.11

have made the necessary technical,
operational, administrative and other
changes to implement dialing parity
for intraLATA toll telecommunications
no later than 21 days prior to the
effective date of Ameritech's authority
. . . on terms approved by the
appropriate state regulatory authority.

(Proposed Order, ¶ 9(b).) Thus, to begin the application process,
Ameritech must make the
necessary changes to ensure that dialing parity can be implemented
prior to Ameritech's
interexchange authority. Before the Department can approve
commencement of the trial, it must
ensure that Ameritech has taken the further step of having installed
and tested the capability for
providing such parity. (Proposed Order, ¶ 11(d).) The Department
can thus ensure that

Ameritech actually implements dialing parity no later than the time
it begins interexchange
service.12

. . . . . . . . . . . . . . . . . . . . . . . . . . .3.
Resale of Local Exchange
Service
Another prerequisite before
Ameritech can file its application with the Department is that
steps have been taken to allow non-facilities-based (i.e., resale)
competition for all classes of
service, including residential service. (Proposed Order, ¶
9(c).)
Resale competition is not a
replacement for facilities-based competition. Competition from
exchange carriers that supply their own loops (e.g., cable systems)
can help thwart discrimination
in the pricing, provisioning, and maintenance of loop facilities, so
long as adequate provisions
are made to deal with the advantages that flow to the dominant
carrier because of network
externalities (e.g., the need to terminate calls on the dominant
carrier's system, number
portability, access to signalling resources and database information,
etc.). Competition from
exchange carriers that supply their own switching facilities but use
Ameritech loops (e.g., CAPs
connecting their switches to Ameritech loops to extend the
geographic area they can serve) are
dependent upon the appropriate pricing, provisioning, and
maintenance of loop facilities. If
those conditions are right, however, they can prevent
discrimination in the provision of network
features and functionality, excessive charges for exchange access,
and so on. Pure resale
competition, by itself, does none of these things. It brings
competition only to the marketing of
local exchange services, and it requires extensive regulation to
ensure that the prices, terms, and

Page 19

conditions under which Ameritech offers the underlying service
make resale meaningfully
available.
Nonetheless, resale competition is
important for two reasons. First, Ameritech will be able to
offer interexchange services very quickly and easily once it has the
authority to do so, by
reselling such services just as hundreds of other companies resell
interexchange services. The
availability of commercially feasible resale opportunities is one
way to ensure that interexchange
carriers that are not in a position to enter local exchange service
quickly and easily on a facilities
basis will have opportunities similar to Ameritech's to offer a full
range of services.
Second, the availability of resale will
tend to reduce the barriers to facilities-based entry,
because a company that already has a subscriber base as a reseller
will be able to make
investments in switches and other facilities with less risk. Just as
unbundling of loops and ports
makes it possible for competing exchange carriers to offer services
outside the dense downtown
areas where they can justify installing their own loops, so full
resale of the entire local service
(loops and ports) makes it possible to offer services before
there is enough traffic to justify
investment in a switch (or in trunks to connect more distant
Ameritech central offices to an
existing switch). Once a subscriber base is built, more investment
may be justified. Such
reductions in barriers to entry will enhance the prospects of the
ultimate success of the trial.
The requirement that there be
adequate resale opportunities is thus directly tied to the
requirement of paragraph 11 that competitive circumstances and
the safeguards and supervisory
provisions of the order ensure the absence of any substantial
possibility that Ameritech could use
its position in the local exchange market to harm competition in the
interexchange market. The
important point is that the ability of the interexchange market to
function competitively not be
harmed.

Page 20

As with the other provisions already
discussed, it is left to the states whether non-facilities-
based competition should be achieved by directly reselling
Ameritech bundled services, or by
renting Ameritech loops and Ameritech ports on their separate
pricing schedules and selling the
combined package as a service, or both.

. . . . . . . . . . . . . . . . . . . . . . . . . . .4.
Pole Attachments and Conduit
Space
A fourth prerequisite is that
Ameritech have implemented reasonable and nondiscriminatory
arrangements for sharing of pole attachments and conduit space,
and for competitors to secure
access to entrance facilities, risers, and telephone closets, to the
extent such arrangements are
under the control of Ameritech. Inability to secure access to poles,
conduits, entrance facilities,
and so forth could be a significant barrier to a facilities-based
competitor seeking to install its
own loops. To the extent that this potential barrier is under
Ameritech's control, Ameritech
promises, by its consent to the proposed order, to eliminate it,
thereby encouraging the
competition that could serve as a predicate for Ameritech's entry
into interexchange service. In
many cases, of course, such barriers may not be in Ameritech's
control. But whether they are or
not, the ultimate question remains that set forth in paragraph 11: to
what extent do competition,
the potential for more competition, and the other provisions of the
order constrain Ameritech's
exercise of market power to harm competition in the interexchange
market? (See Section III.B.)

phone—most notably Ameritech's customers. Without such
interconnection, the competitor's
service essentially would be worthless. This basic need for
interconnection gives rise to a host of
complex issues, the resolution of which has important ramifications
for competition. For
example, arrangements must be made for networks to compensate
each other for terminating
calls that originate in another network. Unless properly structured,
the reciprocal compensation
arrangements can raise significant barriers to entry by potential
local competitors.
Likewise, the interconnection
arrangements must be on terms that permit local dialing parity,
so that customers of Ameritech's competitors can place local calls
without suffering any
inconvenience—such as dialing extra digits—that is not imposed on
Ameritech customers.
Local competitors must also have adequate access to various
services necessary to the provision
of local exchange service, such as unbundled signalling and 611,
911, E911, call completion, and
TRS relay services, as well as data necessary to provide 411
(directory assistance) service.
The proposed order does not attempt
to dictate the precise resolution of each of these issues.
Some of these issues might be resolved among the carriers without
intervention by state
regulators. If the terms are acceptable to the competitive exchange
carriers, the arrangements
will satisfy paragraph 9(e).13 If the carriers cannot agree, regulatory approval will
satisfy
paragraph 9(e), because it would not further the public interest in
competition to give each

Page 22

competitor a veto power over Ameritech's ability to move forward
with a trial.14 In
either case,
the ultimate question will be the competitive effects of the
arrangements, which will necessarily
be considered in connection with the assessment of competitive
conditions required by paragraph
11 of the proposed order.

. . . . . . . . . . . . . . . . . . . . . . . . . . .6.
Number Portability
As discussed above in Section II.C,
an important element in local exchange competition is
service provider number portability—the ability of a subscriber to
retain his telephone number
when changing carriers. The proposed order distinguishes between
two ways of achieving
service provider number portability: true number portability and
interim number portability.
True number portability allows calls to be delivered directly to the
subscriber's new exchange
carrier without having to route traffic through the old exchange
carrier and retains the full range
of functionality (e.g., delivery of information necessary to provide
caller ID functions) that
would have been available to the subscriber in the absence of a
change in service provider. Such
true number portability is likely to involve some form of database
look-up: for example, an IXC
delivering a call into the Chicago area would use the signalling
network to consult a database,
which would supply to the service provider the information
necessary to deliver the call to the
correct exchange carrier.
In the absence of true number
portability, a variety of means exist to provide number
portability on an interim basis. An example is remote
call-forwarding. A subscriber changing
from Ameritech to a new exchange carrier would receive a new
telephone number, the first three

digits ("NXX code") of which would be an NXX code assigned to
the subscriber's new carrier.
If a caller dialed the subscriber's old telephone number, the call
would be routed to Ameritech's
switch, since the old number would contain an NXX code assigned
to Ameritech. Ameritech's
switch would be programmed to complete the call by use of an
additional circuit from its switch
to the new exchange carrier's switch. Such interim forms of
number portability may suffer
certain drawbacks, e.g., the loss of data necessary to provide certain
functions, such as caller ID;
transmission delays as a result of the additional switching that may
impair suitability for data
transmission; and inability of the new exchange carrier to collect
the access charge for
terminating an interexchange or intraLATA toll call.15
The proposed order requires
Ameritech to implement true number portability in the Trial
Territory, except that if it is unable to do so as of the date 120 days
before the anticipated
implementation of intraLATA dialing parity, it may rely on interim
number portability if it
explains satisfactorily why it cannot implement true number
portability as of that date and sets
forth a plan acceptable to the Department for achieving true
number portability.
Achievement of true number
portability is not totally in the control of Ameritech. It will
require cooperation from vendors of hardware and software, such
as AT&T, as well as from
other industry participants, such as IXCs, who will be delivering
traffic destined for ported
numbers. Ameritech has already issued a Request for Proposal for
the technology and
administrative services necessary to implement true number
portability. The Illinois Commerce
Commission has ordered an industry task force to be created, under
the supervision of the
Commission staff, to deal with the issue of number portability.
ICC Order, supra note 7, at 110

[Appendix, Tab 7]. This task force will hold workshops, at which
industry participants can react
to that RFP, propose alternative specifications, and attempt to
arrive at a workable solution. The
first of those workshops was held on April 21, 1995.
As with many of the other steps in
paragraph 9, the actual terms and conditions under which
either true or interim number portability is offered are likely to
have a major impact on whether
there are substantial opportunities for other exchange carriers to
compete. The proposed order
requires that arrangements be made for allocating the costs of
number portability that do not
place an unreasonable burden upon competing exchange carriers,
leaving to Ameritech, industry
participants, and state regulators the task of working out the precise
terms of such arrangements
in the first instance.
Separate from service provider
number portability is the issue of location portability—the
ability to retain the same telephone number at a different location
within a geographic area. It is
not particularly significant for competition that location portability
be available. If it is available,
however, competition could be adversely affected if Ameritech's
control over monopoly
facilities allows it to offer such a feature while preventing its
competitors from doing the same.
The proposed order thus requires that, to the extent Ameritech is
offering location portability to
its own customers, and to the extent it is technically and practicably
feasible, Ameritech make
available to other exchange carriers, on nondiscriminatory terms
and conditions, the capability to
offer such portability.
Nondiscrimination in this context
would not mean that exchange carriers offering switching
services in competition with Ameritech would necessarily be
afforded access to features in
Ameritech's switch. To the extent that switching facilities are
competitive, and location
portability is a service offered through such facilities, competition
should encourage all

Page 25

competitors to differentiate their services by offering new and
better features. Nondiscrimination would mean, however, that Ameritech could not hinder
competitors offering such services
through discrimination in the terms in which they connected to
Ameritech's network or through
other means. For example, if location portability is achieved
through wiring changes at the
central office rather than through software features in the switch, an
exchange carrier competing
with Ameritech by connecting its own switches to Ameritech loops
would be placed at a
significant disadvantage if Ameritech denied equal access to such
wiring changes. Similarly, it
would likely be discriminatory for Ameritech to refuse to offer to
switchless resellers (i.e., those
using both Ameritech loops and Ameritech ports, including
switching services) the same location
portability features it offers to its own subscribers; since Ameritech
facilities are handling the
entire call, there is no apparent reason why the same features could
not be made available.

. . . . . . . . . . . . . . . . . . . . . . . . . . .7.
Number Assignment
Telephone numbers are the most
fundamental means of interface between end users and the
telephone network, as well as between one network and another. A
competitive local telephone
network must have fair and equal access to number resources as an
essential element of
developing telecommunications services and competing for
customers. To ensure the
competitively neutral administration of number resources, the
proposed order requires Ameritech
to have made reasonable efforts to transfer any duties it has in
administering those resources to a
neutral third party. (Proposed Order, ¶ 9(h).) If its efforts to
transfer its duties are not successful
by the time Ameritech applies for authorization to provide
interexchange service, it must explain
in writing why they have not been successful and what further steps
it plans to take, and must
implement a nondiscriminatory procedure for assigning numbers.
The efficacy of such

arrangements will be considered by the Department in making its
determination under paragraph
11.VIII. Actual Marketplace Facts Concerning the Emergence of Local
Competition

. . . . . . . . . . . . . . . . . . . . . . . . . . .1.
Procedures for Department
Approval
Completion of the above steps would
not result in immediate commencement of the trial of
interexchange service. Instead, at that point Ameritech will apply
to begin the trial if it believes
competitive circumstances in the local market warrant. Ameritech
will report to the Department
that it has taken the required steps with respect to unbundling,
intraLATA toll dialing parity,
resale of local services, pole attachments and conduit space,
interconnection, number portability,
and nondiscriminatory number assignment. In addition, Ameritech
must file a compliance
plan.16 After Ameritech has filed both the report and compliance
plan, the Department will have
thirty days to determine whether it needs any additional
information from Ameritech. Within
sixty days after Ameritech has substantially complied with the
Department's request for
additional information or 120 days after the filing of both the report
and the compliance plan,
whichever is later, the Department will determine whether
Ameritech may begin the trial. In
making that decision, the Department will seek comments from the
appropriate state regulatory
authorities and interested persons. (Proposed Order, ¶ 11(a).) It
may also take any other action
reasonably necessary to make its decision, including conducting
third-party discovery. (Id.,
¶¶ 11(a), 49.)

. . . . . . . . . . . . . . . . . . . . . . . . . . .2.
Procedures for Court Review
The Court may, in its discretion,
review any decision of the Department, both with respect to
commencement of the trial and otherwise. (Id., ¶ 51.) If
the Department approves
commencement of the trial, such approval could not go into effect
for at least 30 days (Proposed
Order, ¶ 13), thus allowing a period of time during which interested
persons could seek a
temporary restraining order from the Court. The Court could then
establish such schedule and
procedures for such review as it deemed appropriate under the
circumstances. If the Department
does not approve commencement of the trial upon a particular
application by Ameritech,
Ameritech does not have a right of review within the structure of
the proposed order. (Proposed
Order, ¶ 51.) It does, however, retain the right to seek Court action
independent of the proposed
order, under sections VII or VIII(C) of the Decree. (Id.).
Ameritech is thus no worse off under
the unreviewability provision than it would be in the absence of the
proposed order. To avail
itself of the benefits of the proposed order, however, it would have
to work further toward
creating conditions that meet the standard of paragraph 11 rather
than involve the Court in
reviewing the Department's decision. This provision gives
Ameritech a strong incentive to apply
to begin the interexchange trial only when the test for doing so is
actually met. The judicial
system is thus spared the burden of premature applications that
could otherwise lead to extensive
judicial review, and Ameritech is given a reason to provide
information to the Department as
quickly as possible, even in advance of its application where
appropriate.

(ii) the conditions specified in
paragraph 9 have been substantially satisfied,
and that regulatory developments
(including but not limited to those
developments set forth in Paragraph
9 and the terms and conditions thereof)
and market conditions offer
substantial opportunities for additional local
exchange competition, as
evidenced by, among other things, the increasing
availability of local exchange
telecommunications alternatives for such
customers,

(iii) the conditions described in (i)
and (ii) above, together with regulatory
protections, the Department's right to
terminate Ameritech's interexchange
telecommunications authority under
Paragraph 16, the transport facilities
restrictions of Paragraph 19, the
compliance plan, the limited geographic scope
described in Exhibit A, and the other
provisions of this Order, are sufficient to
ensure that there is no substantial
possibility that Ameritech could use its
position in local exchange
telecommunications to impede competition for the
provision of interexchange
telecommunications to business or residential
customers in the Trial Territory.

(Proposed Order, ¶ 11(b) (emphasis added).)
Thus, the standard has three
parts—actual competition, substantial opportunities for
additional competition, and a determination that such competition
and competitive opportunities,
together with regulation, post-entry safeguards, and the fact that
Ameritech's interexchange
service would only be on a trial basis, make it safe and desirable to
begin the trial. These three
parts of the standard are related both to each other and to the
ultimate objectives of the trial.

Page 29

For the trial to be an ultimate
success, it will have to help prove or disprove one or both of
two propositions: (1) the competitive steps outlined above produce
enough actual competition
and opportunities for additional competition to ensure by
themselves that there is no substantial
possibility Ameritech could engage in anticompetitive conduct
affecting the interexchange
market, or (2) some combination of actual competition and
opportunities for additional
competition, together with regulation and post-entry safeguards, is
sufficient to ensure the
absence of such possibility.17
Paragraph 11 does not require that
either of these propositions be proved before the trial
begins; indeed, the purpose of the trial is to test these propositions.
At the same time, it is
important to ensure that the trial itself does not result in harm to
competition in the interexchange
market. Many of the same factors—actual competition,
opportunities for additional competition,
and post-entry safeguards—that would protect competition in the
event permanent relief were
appropriate will also serve to protect competition during the trial.
Since the premise of the trial
is that these factors will not be known to be sufficient at the
beginning of the trial, however, the
proposed order also provides for very close supervision by the
Department, including a provision
for the Department to terminate the trial if necessary. Before
beginning the trial, the Department
is to make a determination that all of these factors, including the
provision for termination,
together will be sufficient to negate any substantial possibility that
Ameritech could use market
power in the local market to harm competition in the interexchange
market.

Page 30

The three parts that make up that
judgment are discussed in greater detail below. Because
they are so closely related, actual competition and substantial
opportunities for potential
competition are discussed together.

. . . . . . . . . . . . . . . . . . . . . . . . . . . 4.
Actual Competition and Substantial
Opportunities For Additional Competition
Competitive outcomes can generally
be assured if there is a sufficient level of actual
competition—multiple competitors actually producing and selling
the good or service. . Theoretically, some markets can produce competitive outcomes even if they
do not contain multiple
competitors actually producing and selling the good or service.
One situation in which such
outcomes may occur is where firms not currently producing or
selling the relevant product in the
relevant area would start doing so quickly, and without the
expenditure of significant sunk costs,
in response to a small but significant price increase. If these firms
are sufficiently numerous that
the incumbent firm cannot maintain prices above the competitive
level, then the market will
behave competitively. Cf. Department of Justice and Federal
Trade Commission Horizontal
Merger Guidelines, § 1.32 (April 2, 1992) [hereinafter
"1992 Merger Guidelines"]. Such a
market is said to be "contestable."
It is hard to think of a market less
likely to be "contestable" than local exchange service.
Sunk costs in this industry are, in a word, gigantic. Perhaps
recognizing this, Ameritech's
original waiver request was supported by an affidavit and a reply
affidavit that spoke not of
"contestability" but of something Ameritech's expert called
"effective" or "as-if" contestability.
Affidavit of David J. Teece ¶ 41 (Nov. 29, 1993) (filed with the
Department of Justice in support
of Ameritech's Original Proposal on Dec. 7, 1993) [Appendix, Tab
13]; Reply Affidavit of David
J. Teece at 3-8 (Apr. 6, 1994) (filed with the Department of Justice
on Apr. 12, 1994) [Appendix,
Tab 14]. By this he meant that Ameritech's unbundling of loops
and ports would allow

competitors to treat those assets as if they were not sunk costs,
freely entering and exiting the
industry in response to competitive conditions by renting only what
they needed at a given
moment in time from Ameritech.
Such an argument, however, is
highly speculative. It assumes that state regulators will get
the prices of those loops and ports exactly right, precisely
duplicating the prices that would
obtain in a competitive market. (See Section II.C.) It further
assumes that Ameritech could not
discriminate in the provisioning or maintenance of loops or ports or
in the terms and conditions
of interconnection, and that competitors will not incur substantial
sunk costs in other elements of
their operation. In short, on the current state of the record, the
Department regards the suggestion
that unbundling would make local telephone markets behave "as-if"
they were contestable as
both unproven and implausible.
A market with only one firm could
also behave competitively if longer-term entry (i.e., with
sunk costs) into the market is so easy that the incumbent firm could
not profitably behave
anticompetitively (e.g., maintain a price above competitive levels
or—more relevant here—use a
monopoly position in that market to adversely affect competition in
an adjacent market). For
entry to be that easy, it would have to be "timely, likely, and
sufficient in its magnitude,
character and scope to deter or counteract the competitive effects of
concern." 1992 Merger
Guidelines, § 3.0. Ameritech argues that unbundling,
interconnection, and the other steps it is
taking pursuant to state regulatory action and paragraph 9 of the
proposed order will make entry
that easy.
As a practical matter, however, it is
impossible to evaluate that argument in the abstract,
without the existence of some actual competition to guide the way.
Once there are significant
actual competitors, one can begin to ask questions such as:

How were those competitors able to
enter? What certification and other
regulatory requirements did they
have to meet, and how long did it take? Is
there any reason other competitors
would not be able to do the same?

Is the availability of such competing
service expanding? Are competitors
encountering significant barriers to
such expansion?

To what extent are competitors
entering by renting loops from Ameritech as
opposed to building their own loop
plant, either for the whole of their local
exchange business or as a way of
extending the reach of their network? To the
extent that competitors have to build
some of their own facilities, how long
does that take, and how many other
competitors could do the same?

Are competitors able to serve a wide
range of customers throughout the Trial
Territory, or are they limited to niche
markets?

To the extent that not all customers
have competitive alternatives available to
them, could Ameritech discriminate
against just those customers that have no
alternatives, or would
anticompetitive behavior against those customers
necessarily cause it to lose so many
other customers that Ameritech could not
profitably persist in the
anticompetitive behavior?

The
proposed order does not specifically state how much actual competition is necessary to
satisfy paragraph 11(b).
Nonetheless, the foregoing discussion suggests the implicit level: there
must be enough actual competition
to provide an empirical basis for answering these kinds of
questions, and the answers must
indicate that there are substantial additional opportunities for
competition and that these
opportunities will be sufficient, in combination with the safeguards
and supervisory provisions of the
order, to deter Ameritech from behaving anticompetitively. To
provide such answers requires more
than a single competitor serving niche markets but less than
the level of actual competition that
would suffice in and of itself to justify permanent removal of
the interexchange restriction, without
the safeguards and supervisory provisions that will
accompany the trial (including the
right of the Department to terminate the trial and the ability of
the Court to review the Department's
determinations).

Page 33

The
proposed order also emphasizes that there must be facilities-based competition in the
Trial Territory. As discussed in
Section III.A.3, resale competition is not a perfect substitute for
facilities-based competition.
Facilities-based competition can discipline a wide range of
anticompetitive conduct that would
be left untouched by resale. Thus, the Department will look
closely at the extent of
facilities-based competition in determining whether the standards of
paragraph 11 are met.IX. Determination That the State of the Market, Safeguards, and Supervisory
Provisions
Make It Safe to Begin the Trial

In
addition to actual competition and ease of entry, the proposed order relies on supervisory
provisions and post-entry safeguards,
as more fully described in Section III.C. For example, the
Department may terminate
Ameritech's interexchange authority if it no longer believes that there
is no substantial possibility that
continuation of the trial would impede competition. (Proposed
Order, ¶ 16.) To authorize
commencement of the trial, then, the Department must determine that
actual competition, substantial
opportunities for additional competition, and these other
supervisory provisions and
safeguards are sufficient to ensure that going forward with the trial
will not create any "substantial
possibility that Ameritech could use its position in local exchange
telecommunications to impede
competition for the provision of interexchange
telecommunications." (Proposed
Order, ¶ 11(b)(iii).) The assurance against harm to competition
must protect both business and
residential customers in the Trial Territory. (Id.)

. . . . . . . . . . . . . . . . . . . . . . . . . . .1.
Other Factors the Department May Consider
The
proposed order specifically highlights a number of additional factors that the Department
may consider in making the
determination under paragraph 11 to proceed with the trial.X. Certification,
Licensing, Franchising, and Similar Requirements

Implicit in the concept that there are substantial opportunities for additional
local exchange
competition is the premise that
certification, licensing, franchising, and similar regulatory and
legal requirements are not
significantly impeding the development of such competition. State
and local regulation serves important
public policy objectives, such as protecting consumers
from deception and ensuring that
carriers have adequate financial backing. In states such as
Illinois and Michigan, which have
state policies favoring competition and in which there is
already a recent history of granting
certificates to competitors, it is the Department's expectation
that such requirements would be
narrowly tailored to achieve such public policy objectives
without impeding competition
significantly. Nonetheless, this factor is specifically mentioned in
the proposed order as an issue for the
Department to consider, because state and local
government policies can have a
major and even decisive impact on whether and how fast
competition will develop.XI. Ordering,
Provisioning, and Repair Systems

There are two different provisions in the proposed order dealing with
electronic access to
ordering, provisioning, and repair
systems. First, if Ameritech wishes to make such systems
available to the Ameritech
interexchange subsidiary, it must offer such access, on
nondiscriminatory terms and rates, to
unaffiliated carriers. (Proposed Order, ¶ 26.) Second, in
making its decision under paragraph
11, the Department may take into account the extent to

which Ameritech offers unaffiliated
carriers access equivalent to that used in Ameritech's local
exchange operations (whether or
not Ameritech's interexchange subsidiary is given access).
(Proposed Order, ¶ 11(c)(ii).)
The
requirement in paragraph 26 is a matter of equal access­putting other carriers in a
position equal to Ameritech's
interexchange subsidiary­and is absolute. The requirement in
paragraph 11 is more judgmental. It
recognizes that there could be technical reasons why it
would not be practicable for
Ameritech to provide access to certain systems to anyone outside
Ameritech's local exchange
operations, including Ameritech's interexchange subsidiary. At the
same time, it recognizes that lack of
such access could have a considerable impact on the
prospects for local competition, and
thus specifically provides for the Department to consider the
issue and take it into account.XII. Supervision and
Safeguards
When the interexchange trial begins, there will be actual local exchange
competition and
substantial opportunities for
additional such competition, but no firm assurance that the competi
tive state of the market will suffice
by itself to thwart any anticompetitive conduct that Ameritech might attempt in the interexchange market. Therefore, the
proposed order contains
supervisory provisions and
post-entry safeguards, designed for use during the trial, to
supplement such competition and
ensure that there is no substantial possibility that Ameritech
could use market power in the local
market to harm competition in the interexchange market
during the trial.
As
competition develops, many of the post-entry safeguards may become unnecessary to
ensure the absence of any such
substantial possibility, and the proposed order provides for their
removal as appropriate. (Proposed
Order, ¶ 17.) The proposed order does not specifically

provide for Ameritech's
interexchange authority to be made permanent and the Department's
supervisory role to be terminated,
because Sections VII and VIII(C) of the Decree already
establish the appropriate mechanism
and standard for permanent relief.
The
Department is required to conduct a comprehensive review of all aspects of the trial
within three years of Ameritech's
interexchange authority under the proposed order. (Proposed
Order, ¶ 18.)
The
specific supervisory provisions and safeguards are as follows.

. . . . . . . . . . . . . . . . . . . . . . . . . . .1.
Terminability of the Trial
If
Ameritech violates the order, or if the Department no longer believes that there is no
substantial possibility that
continuation of the trial would impede competition, Ameritech's
interexchange authority can be
terminated (Proposed Order, ¶ 16), subject to review by the Court
(Proposed Order, ¶ 51). This
termination provision ensures that, even if the opportunities for
local exchange competition at the
start of the trial and other safeguards turn out not to be
sufficient to prevent Ameritech from
taking actions that harm competition in the interexchange
market, any such harm will be
short-lived and insubstantial.
During the comment process, a number of commenters suggested that it would
be difficult
for the Department to exercise this
authority. In response to these concerns, a provision was
included in the proposed order to
require Ameritech's compliance plan to supply, prior to
approval of its interexchange service,
a credible plan for orderly withdrawal from the provision
of interexchange
telecommunications in the event Ameritech's authority to offer interexchange
telecommunications is discontinued.
(Proposed Order, ¶ 10(j).) Such a plan might include, for
example, a procedure for balloting
customers or for reverting them to their previous

interexchange carrier. Moreover, the
proposed order makes clear that financial hardship to
Ameritech resulting from such
discontinuance shall not be a ground for opposing such
discontinuance. (Proposed Order, ¶
16.)

. . . . . . . . . . . . . . . . . . . . . . . . . . .3.
Orders to Discontinue Conduct
If the
Department determines (a) that Ameritech is violating any of the terms of the order, its
compliance plan, or additional
conditions imposed on Ameritech in connection with approval of
its interexchange service, or (b) that
other conduct by Ameritech may impede competition for
interexchange telecommunications in
the Trial Territory, the Department may require Ameritech
to discontinue such violations or
other conduct. Ameritech bears the burden of proof in resisting
such a requirement. (Proposed
Order, ¶ 15.)

. . . . . . . . . . . . . . . . . . . . . . . . . . .5.
Limited Geographic Scope
The
proposed trial is limited initially to the portion of the Chicago LATA that is in the state
of Illinois and to the Grand Rapids,
Michigan, LATA. Focusing on the state of competitive
conditions on a LATA-by-LATA
basis ensures that the competitive analysis takes into account
differences not just in state
regulatory schemes, but also in demographic and other conditions.
Chicago was chosen because there is
widespread agreement that, of all the areas in the Ameritech
service territory, the potential for
competition—though still embryonic—is most advanced there.
Grand Rapids was chosen because
the first competing exchange carrier in Michigan, U.S. Signal
(formerly known as City Signal), has
been certified to serve a portion of that territory and was
the subject of a detailed
interconnection order issued by the Michigan Public Service
Commission. Thus, it seems
appropriate for the Department to focus first on those two areas and
to be prepared to act with respect to
those areas within the period set forth in paragraph 11(a).
The
inclusion of these two areas in the Trial Territory does not mean that the trials in those
two areas necessarily must proceed
simultaneously. Competitive conditions in one of the areas
may justify proceeding with an
interexchange trial before such conditions have evolved in the
other area. Further, explicit
provision is made for expansion of the Trial Territory in those two
states, and each area in the two states
will stand on its own merits, governed by the standard in
paragraph 11(b).18 (See Proposed
Order, ¶ 17.) As with other determinations under the proposed

order, the Court may, in its
discretion, review any decision to expand the Trial Territory. (Id.,
¶ 51.) If the Department approves
expansion, such expansion could not go into effect for at least
30 days (Proposed Order, ¶ 17), thus
allowing a period of time during which interested persons
could seek a temporary restraining
order from the Court. A decision by the Department not to
expand the Trial Territory would
also be reviewable. (See Proposed Order, ¶ 51.)
Most
important, the designation of those two areas as comprising the initial Trial Territory,
and of those two states as being
eligible for expansion of the Trial Territory within the
framework of the order, is not meant
in any way to discourage the ongoing efforts of the other
Ameritech states (Indiana, Ohio, and
Wisconsin)—or similar efforts underway or that may arise
in the states in which other RBOCs
operate—to bring the benefits of local competition to the
consumers in their states, completely
independent of any interexchange entry by Ameritech in
those states. Local competition
promises benefits to consumers separate from any benefits they
may get as a result of interexchange
competition from Ameritech. Moreover, the development of
such competition can only hasten the
day when interexchange entry by Ameritech—or other
RBOCs—will be appropriately
granted under Section VII or VIII(C), wholly apart from the
proposed order now before the
Court.

. . . . . . . . . . . . . . . . . . . . . . . . . . .6.
Types of Services
Paragraph 7 of the proposed order limits Ameritech to providing certain
enumerated types of
interexchange services that have a
clear nexus to the Trial Territory, i.e., services as to which the
fact that competition exists in the
Trial Territory is relevant even if competition does not exist
elsewhere in the country. Thus, for
most switched services, as to which the interexchange carrier

is selected by the party placing the
call, Ameritech could provide interexchange service
originating from the Trial Territory.
(Proposed Order, ¶ 7(a).) For services such as inbound 800
service, which is ordinarily carried
by the interexchange carrier selected by the billed party at the
terminating location, Ameritech
could provide service terminating at subscribers' locations in the
Trial Territory. (Proposed Order, ¶
7(b).) Ameritech may also provide certain other types of
services normally provided by
interexchange carriers to their subscribers, such as calling card
and private line services, with
limitations to ensure an adequate nexus to the Trial Territory.
(Proposed Order, ¶¶ 7(c)-(d).) There
may also be other types of services that Ameritech may
wish to offer in the future in order to
stay competitive with the offerings of other IXCs. Because
these services may not yet exist, it is
difficult to enumerate them, much less to determine in
advance whether any potential harm
to competition is adequately addressed by the proposed
order. Hence, a mechanism is
provided to allow Ameritech to provide such services, subject to
disapproval by the Department.
(Proposed Order, ¶ 7(e).) Under this provision, Ameritech
would have to give at least 30 days
notice of such services, and the Department, after soliciting
comments from interested persons,
could disapprove the offering of such services. A relatively
short notification and objection
period is provided because it is anticipated that this provision
will principally be used to respond to
competitive offerings in the marketplace; however, a
decision not to disapprove the
services would be without prejudice to later withdrawal of
authority under paragraphs 15 or 16
of the order if necessary.

. . . . . . . . . . . . . . . . . . . . . . . . . . .7.
Ownership of Transport Facilities
Paragraph 19 of the proposed order provides that Ameritech shall not own any
of the
transport facilities used to provide
interexchange telecommunications. Instead it must contract
for such facilities for a term not to
exceed five years. This safeguard serves two purposes: to the
extent Ameritech has not made
substantial investments in facilities in the ground, it makes it
easier to terminate the trial; and it
reduces Ameritech's incentive to discriminate in favor of those
facilities because it makes it harder
for Ameritech to capture all of the benefits of such
discrimination.XIII. Separate Subsidiary
Requirements
Paragraph 20 of the proposed order provides for the separation of the
Ameritech subsidiary
providing interexchange services
from the Ameritech local exchange operations. The provisions
generally track the more stringent
approach taken by the Federal Communications Commission
in its Computer Inquiry II
proceedings and rules and in the requirement of separate subsidiaries
for RBOC provision of commercial
mobile radio services, rather than more lenient approaches
relying on cost accounting instead of
structural separation (such as the approach taken by the
FCC in its Computer Inquiry III
proceeding19).
The more stringent structural separation
approach is more appropriate for a
trial of interexchange services, at least in the early stages
before competition is fully developed
and before additional information about the need for
separate subsidiary requirements is
gained from the trial itself.20

. . . . . . . . . . . . . . . . . . . . . . . . . . .1.
Equal Access Provisions
Under the proposed order, the equal access provisions of the Decree would
remain in full
force; the order would grant
Ameritech only a temporary and limited modification of the line of
business restriction of Section
II(D)(1) of the Decree and would not relieve Ameritech of any
other restrictions. (Proposed Order,
¶ 4.) In addition, a number of provisions are added to adapt
the equal access concept to a
situation in which an Ameritech subsidiary is one of the
interexchange carriers
interconnecting with the Ameritech local exchange operations. These
provisions deal with equality in the
type, quality, and pricing of interconnection, exchange
access, and local exchange
telecommunications (¶¶ 21, 25); technical information, standards,
collocation, and other terms of
interconnection (¶¶ 22-24); availability of service order,
maintenance, and other
telecommunications support systems (¶ 26);21 billing services (¶ 27);
location number portability (¶ 28);
White Pages directory listings (¶ 29); and customer
information (¶¶ 30-32).22

. . . . . . . . . . . . . . . . . . . . . . . . . . .2.
Marketing Restrictions
The
marketing provisions of the order (¶¶ 33-47) deal with two principal issues: (1) "equal
access"-type obligations preventing
Ameritech's local exchange operations from assisting the
Ameritech interexchange subsidiary
in its marketing efforts, and (2) the circumstances under
which Ameritech can make one-stop
shopping arrangements (i.e., the ability of customers to get
their local and long distance calling
from one, full-service carrier) available to business and
residential customers, respectively.
The "equal access" obligations (¶¶ 34, 36, 38-39, 44)
embody the basic principles of
existing obligations, with modifications to ensure that those
principles will be effectuated when
Ameritech competes in the provision of interexchange
services. The provisions regarding
one-stop shopping (¶¶ 35, 41-43, 45-47) are intended to avoid
giving an inappropriate competitive
advantage to, or imposing an unfair handicap on, any carrier.
The order would allow Ameritech to
offer one-stop shopping to business or residential customers only when at least one other carrier is marketing services on a
comparable basis.23

Page 44

The
proposed order does not set out specific conditions under which Ameritech can engage in
"bundle-pricing" of its interexchange
services with local exchange or intraLATA toll services
(i.e., pricing whose availability is
contingent upon the subscriber's selection of Ameritech for
both such services). Whether such
bundle-pricing is appropriate, and the types of conditions
needed to prevent harm to
competition in interexchange services, depends on the state of
competition. The issue of
"bundle-pricing" has therefore been made an element of Ameritech's
compliance plan (Proposed Order, ¶¶
10(e)-(f)). Ameritech will tailor its proposal to the
competitive circumstances then
existing, and the Department will review it in light of those
circumstances.

. . . . . . . . . . . . . . . . . . . . . . . . . . .3.
Compliance Plan
The
proposed order requires Ameritech to file a compliance plan prior to obtaining approval
to begin its trial of interexchange
services. (Proposed Order, ¶ 10.) The compliance plan
reinforces the separate subsidiary,
equal access, and marketing provisions of the order by
requiring Ameritech to spell out
detailed plans for implementation of those requirements.
(Proposed Order, ¶¶ 10(a)-(d), (g).)
It also provides the mechanism for determining the
appropriate market and other
conditions for Ameritech's offering of bundled pricing (¶¶ 10(e)-
(f)) and for the Ameritech
interexchange subsidiary's ownership, leasing, or control of any of the
facilities it uses to provide local
exchange telecommunications and exchange access services
(¶ 10(h)). The compliance plan also
will include procedures for Ameritech to detect and self-
report violations of the order or the
compliance plan (¶ 10(i)) and for Ameritech's withdrawal
from interexchange service should it
be required to do so (¶ 10(j)).

. . . . . . . . . . . . . . . . . . . . . . . . . . .4.
Other Conditions
Ameritech's entry into interexchange services may also be conditioned on any
other terms
that may be appropriate to further the
purposes of the order. (Proposed Order, ¶ 11(e).)XIV. The Proposed Modification Should Be Approved Because It Is in the
Public Interest.

I. The Public Interest Standard Applies to Entry of the Proposed
Modification. In reviewing the proposed modification, the Court should apply the "public
interest"
standard. The motion was filed by
the United States under section VII of the decree, and
Ameritech and AT&T have joined
the United States in stipulating to the proposed order.
The
Court of Appeals has held that a proposed modification satisfies the public interest test
"`so long as the resulting array of
rights and obligations is within the zone of settlements consonant with
the public interest today.'" United States v. Western Electric Co., 993 F.2d
1572,
1576 (D.C. Cir.) (quoting United
States v. Western Electric Co., 900 F.2d 283, 307 (D.C. Cir.), cert. denied, 498 U.S. 911
(1990)) (emphasis in original), cert. denied, 114 S. Ct. 487 (1993).
The public interest test is "flexible,"
allowing the government to choose among various decree
provisions that could further the
public interest in competition. When the government and the
party whose decree obligations are at
issue agree on a decree modification proposal, as is the case
here,
the
court's function is not to determine whether the resulting array of rights
and
liabilities "is one that will best serve society," but only to confirm that
the
resulting "settlement is `within the reaches of the public interest.'"

993 F.2d at 1576 (citing and quoting
900 F.2d at 309; United States v. Bechtel Corp., 648 F.2d
660, 666 (9th Cir.), cert.
denied, 454 U.S. 1083 (1981); and United States v. Gillette Co., 406 F.
Supp. 713, 716 (D. Mass. 1975))
(emphasis in original). Therefore, a court is to approve a
consensual decree modification
under the public interest standard unless "it has exceptional
confidence that adverse antitrust
consequences will result—perhaps akin to the confidence that
would justify a court in overturning
the predictive judgments of an administrative agency." 993
F.2d at 1577.
The
Department welcomes this Court's careful review of the proposed modification under
this standard. We are confident that
the text of the proposed order, the explanation that we are
providing in this Memorandum, and
the comments of other interested persons will give the Court
ample reason for entering the
proposed order.II. The Proposed
Modification Is In the Public Interest.
The
proposed modification both avoids harm to competition in the interexchange market and
yields affirmative benefits to
competition. Accordingly, it is in the public interest and should be
approved and entered by this
Court.

. . . . . . . . . . . . . . . . . . . . . . . . .1.
The
Proposed Modification Is Structured to Avoid Harm to Competition in the Interexchange
Market.
Far
from giving the Court "exceptional confidence that adverse antitrust consequences will
result," the proposed modification
gives the Court ample assurance that no adverse consequences
will occur. As this Memorandum
has explained, the order we ask the Court to enter would
permit only a limited trial of
Ameritech provision of interexchange services, and even that trial
could not begin until the Department
(and the Court if it reviews the Department's
determination) is satisfied that local
competition exists and will continue to develop in the Trial

Territory. In addition, the
interexchange services that the modification permits would remain
subject to a variety of safeguards,
including the power of the Court or the Department to
terminate the trial at any time.
The
proposed order thus ensures that competition in the interexchange market will not be
harmed by the modification—a fact
underscored by AT&T's stipulation that the proposed
modification is in the public interest
and by the support of Sprint, CompTel, and ACTA.

. . . . . . . . . . . . . . . . . . . . . . . . . . .2.
The
Trial Will Provide Affirmative Benefits to Competition.
Not
only is the proposed order structured to prevent any harm to competition, but it also
presents a valuable opportunity
affirmatively to advance the public interest in competition.
First,
as a prerequisite to its offering of interexchange service pursuant to this modification,
Ameritech must take specific actions
to remove barriers to local competition, including those
relating to terms of interconnection,
unbundling of loops, dialing parity, and number portability.
The proposed modification thus
complements the efforts of the state regulatory commissions in
the Ameritech region to lower such
barriers, as reflected in the comments of the staff of the
Michigan PSC on an earlier version
of the proposal:
[T]he Department of Justice (DOJ) and the Court should move forward in
a
measured fashion to permit more competition in the telecommunica- tions
marketplace. That action, however[,] should be such that it recognizes
the
need
to balance the interests of the Regional Bell Operating Companies
(RBOC), their local and toll competitors, and residential and business
customers in the telecommunications marketplace. That balance can be
achieved through an approach which minimizes the potential for
anticompetitive actions on the part of the RBOCs. This coupled with the
coordination and recognition of appropriate State law and regulatory
agency
actions to remove barriers to entry to the State or local
telecommunications
markets should set the stage for a trial waiver of the interLATA
restrictions
currently in effect.

Second, the trial will yield important information about RBOC provision of
interexchange
services. The Department, the
Court, all segments of the telecommunications industry, and the
public will be able to observe and
analyze the effects of the stipulated conditions, and related
regulatory and technological
developments, on competition in local and interexchange
telecommunications markets. We
will learn much about whether local competition will develop
to such an extent that harm to
interexchange competition can be avoided, with or without other
safeguards. We will also enhance
our understanding of the importance of factors such as call set-
up and transmission delays resulting
from interim forms of number portability, consumer
demand for one-stop shopping, the
terms and conditions of interconnection, and the pricing of
network elements in the
development of such competition. If competition is not sufficient to be
self-policing, we may learn how
difficult and costly it is to monitor and prevent discrimination
and cross-subsidization. We will
also learn about what kinds of safeguards are effective and/or
necessary.
No
trial, of course, could provide all the answers. Nonetheless, this trial should substantially
assist in determining whether and on
what terms the Decree's interexchange restriction should be
retained, modified or removed.
Third, the trial may yield important information about the possible benefits to
interexchange
competition from RBOC provision
of interexchange services. The RBOCs have argued that the
interexchange market, particularly
for residential customers, is oligopolistic rather than
competitive, and that RBOC entry
will tend to disrupt that oligopolistic coordination, resulting in
substantial benefits to consumers.
While Ameritech has not yet presented sufficient evidence to
substantiate this claim, actual
experience may cast additional light on this argument.

The
carefully crafted details of the proposed order grew out of intensive work by the
Department and extensive
consultation and negotiation with interested persons. We do not
expect all commenters to be
satisfied; in an arena filled with competing private interests, we can
be assured that some will claim that
the balance has not been struck precisely right. The issue,
however, is whether the Department
"reasonably regard[s]" the modification "as advancing the
public interest," 993 F.2d at 1576.
On that issue, the terms of the proposed order demonstrate,
and we believe the comments of
interested persons as a whole will confirm, that the proposed
modification advances the public
interest. The Court should therefore enter the proposed order
and allow this important trial to
proceed, subject to the preconditions, safeguards, and continuing
review for which the order itself
provides.
.

Page 50

Respectfully submitted,

ANNE K. BINGAMAN
Assistant Attorney General

WILLARD K. TOM
Counselor to the Assistant Attorney General

DAVID S. TURETSKY
Senior Counsel to the Assistant Attorney General

JERRY S. FOWLER, JR.
Special Counsel to the Assistant Attorney General

1See,
e.g., MCI Corp., A Blueprint for Action: The Transition to Local Exchange
Competition, Tab 1 at 1 (March 1995) [Appendix, Tab 1]; William J. Baumol & J. Gregory
Sidak, Toward Competition in Local Telephony 9 (1994); Affidavit of William J. Baumol at 5,
submitted on behalf of AT&T as an attachment to AT&T's Opposition to Ameritech's Motions
for "Permanent" and "Temporary" Waivers From the Interexchange Restrictions of the Decree
(filed with the Department in opposition to Ameritech's original proposal on February 15, 1994)
[that opposition cited hereinafter as "AT&T Opposition to Original Proposal"] [Appendix, Tab
2].

3 Teleport is
planning to test the use of cable facilities owned by Tele-Communications, Inc., ("TCI") to
provide local exchange service to residential customers in the Chicago area. See Leslie
Cauley, Tele-Communications, Motorola to Join Teleport for Venture in Chicago Area,
Wall Street J., Oct. 12, 1994, at B5. Others are exploring similar possibilities.

4 Specifically,
Ameritech asserted that "industry-wide developments . . . are themselves more than sufficient to
warrant removal of the interexchange restriction." Ameritech Memorandum in Support of
Motions to Remove the Decree's Interexchange Restriction at 3 (filed with the Department of
Justice on Dec. 7, 1993) [Appendix, Tab 6]. The Department does not believe that the record is
sufficient at this time to support this contention (either as to technological or regulatory
developments), and does not base the present motion on any such contention.

5 These
prohibitions were also justified as a way to promote universal service, by requiring high-margin
services to subsidize below-cost services and prohibiting new entrants from "cream-skimming"
those services. In recent years, progressive states have begun to explore alternative ways of
ensuring universal service that would permit competition and allow consumers the benefit of the
efficiencies and lower prices that competition brings.

6 Positive
network externalities characterize those "products for which the utility that a user derives from
consumption of the good increases with the number of other agents consuming the good. . . .
[T]he utility that a given user derives from the good depends upon the number of other users who
are in the same ‘network' as he or she." Michael L. Katz & Carl Shapiro, Network
Externalities, Competition and Compatibility, 75 Am. Econ. Rev. 424, 424 (1985). "The
utility that a consumer derives from purchasing a telephone . . . clearly depends on the number of
other households or businesses that have joined the telephone network." Id.

8A Blueprint
for Action, supra note 1, Tab 3 at 2 [Appendix, Tab 1]. A similar telephone survey
was conducted in January 1994, by First Market Research Corporation, for a study sponsored by
AT&T, MCI, and CompTel. That survey found that in the absence of number portability, the
number of respondents interested in changing to a cable TV company for local telephone service
in response to a 20% discount fell from 32.8% to 22.6%. Corresponding figures for a 10%
discount and for no discount were a drop from 18% to 12.6% and from 8.7% to zero,
respectively. Economics & Technology, Inc. & Hatfield Associates, Inc., The Enduring Local
Bottleneck 108-10 (February 1994) [Appendix, Tab 8].

9 Initially, the
Trial Territory would consist of the portion of the Chicago LATA that is located in the state of
Illinois and the Grand Rapids LATA in the state of Michigan. The two LATAs could begin their
interexchange trials at different times, and the Trial Territory could eventually be expanded to
include other portions of those two states (but only those two states) if those portions met the
competitive standard set out in the proposed order.

10 Regulatory
consideration of such issues is already well underway in the trial states. In Michigan, the
Michigan PSC adopted on an interim basis a pricing scheme for unbundled loops that was
proposed by City Signal, a CAP which in 1994 was granted a license to provide local service in
the Grand Rapids LATA. Under the interim scheme, Ameritech will charge City Signal $8 for a
residential loop and $11 for a business loop. The Commission will further address these issues in
an upcoming generic proceeding, to commence June 1, 1995, and to be completed no later than
nine months thereafter. In the matter of the Application of City Signal, Inc., for an Order
Establishing and Approving Interconnection Arrangements with Ameritech Michigan, Case
No. U-10647, at 85-95 (Mich. Pub. Serv. Comm'n, Feb. 23, 1995) [hereinafter "City Signal
Order"] [Appendix, Tab 9]. In Illinois, the Illinois Commerce Commission heard
extensive testimony on Ameritech's proposed pricing of unbundled loops and ports, disapproved
certain aspects of that pricing, and required that Ameritech file new tariffs to ensure that the sum
of prices for unbundled network functions not exceed the price of bundled functions and to
reduce and equalize the contribution that those prices would make to common costs. ICC
Order, supra note 7, at 60-61 [Appendix, Tab 7].

11 The issue
of "sub-loop unbundling" is dealt with in similar fashion. AT&T and others have contended that
merely unbundling loops from ports does not go far enough. Instead, AT&T contends that local
service should be unbundled into at least twelve basic network elements: distribution,
concentration, feeding, end office switching, dedicated line transport, common transport, tandem
switching, databases used in signaling, packet switching of signaling from the originating central
office, packet switching of signaling at the destination, links from the packet switches to data
processors and storage points, and operator services. Affidavit of Lawrence A. Sullivan,
submitted by AT&T in its Opposition to Original Proposal, at 29-30 (filed with the Department
of Justice on Feb. 15, 1994) [Appendix, Tab 10]. Advocates for this position argue, for example,
that a provider of personal communications services ("PCS") might be able to provide a wireless
connection from the home to a neighborhood node, and then use Ameritech facilities to get from
the neighborhood node to the central office. Testimony of Dr. Mark T. Bryant on behalf of MCI
before the Illinois Commerce Commission, at 10-11 (Dkt. No. 94-0048, Aug. 8, 1994)
[Appendix, Tab 11]. Ameritech responds that such an approach could lead to the uneconomic
stranding of significant amounts of its investment, to no real purpose since the facilities can be
made available to competitors on a nondiscriminatory basis and since continued use of
Ameritech facilities whose costs are already sunk would be in the interests of consumers. The
proposed order does not require sub-loop unbundling, but makes clear that this resolution is
without prejudice to the power of a state to require such further unbundling. (Proposed Order, ¶
1(m).) Moreover, it makes clear that the Department may consider the competitive effects of
such unbundling (or lack thereof). (Id.)

12 State law or
regulatory requirements intended to benefit competition in the intraLATA toll market may
require Ameritech to implement intraLATA toll dialing parity before Ameritech has met the
conditions in ¶ 11 of the proposed order. In that case, intraLATA toll dialing parity would come
into effect before Ameritech commences interexchange service.

13 The
proposed order does not displace state regulation, however. (See Proposed Order, ¶ 3.)
State regulators may choose to regulate arrangements even when consented to by the carriers
involved. In allowing paragraph 9(e) to be satisfied by consent of the other exchange
carriers, we recognize that unequal bargaining power may lead a competitive exchange carrier to
agree to unsatisfactory terms. That is precisely why the provisions of paragraph 9 are not a
checklist that will lead automatically to Ameritech's entry into interexchange service. The
ultimate issue will always be the competitive results of the negotiated arrangements, as tested
against actual marketplace facts. (See Section III.B.) Thus, because the proposed order
requires that the Department analyze market facts and assess competitive circumstances, the
proposed order gives Ameritech the incentive to negotiate in good faith and arrive at a
procompetitive agreement with competitive exchange carriers.

14 Of course,
the reasons advanced by a competing carrier as to why the proffered interconnection
arrangements are inadequate may have a bearing on any assessment of competitive
circumstances.

16 The
compliance plan, which deals principally with post-entry safeguards, is discussed in more detail
in Section III.C, below.

17 The
Department is currently investigating claims that regulation and post-entry safeguards are
sufficient to ensure that there is no substantial possibility that an RBOC could engage in
anticompetitive conduct, without the market-opening measures contemplated in the proposed
order, in connection with the Motion of Bell Atlantic Corporation, BellSouth Corporation,
NYNEX Corporation, and Southwestern Bell Corporation to Vacate the Decree. (Bell Atlantic
has since withdrawn from that motion.) Ameritech is not advancing that proposition at this time,
however, and the proposed trial is not designed to test such claims.

18 The staff of
the Michigan PSC, in its comments on an earlier version of the proposal, urged the Department
to include the Detroit and Lansing LATAs in the Trial Territory. Revised Comments of the Staff
of the Michigan Public Service Commission (Mar. 22, 1995) [Appendix, Tab 15]. The
Department does not believe this change to be appropriate, because it is too early to tell how
widely different areas of the state will vary in the availability of competitive alternatives and the
ability of such alternatives to guard against harm to competition in the interexchange market.
We stress, however, that the modification provisions of the proposed order establish sufficient
flexibility to deal appropriately with whatever competitive conditions should arise.

20 Even under
the FCC's Computer Inquiry II approach, certain kinds of services can be shared between the
interexchange subsidiary and other affiliates. These are enumerated in ¶ 20(g). To the extent that
any such sharing is carried out in a way that harms competition, the Department and the Court
retain the power to take corrective action under ¶¶ 15-16, as well as to take that fact into account
in evaluating the progress of the trial under ¶ 18.

21 The
proposed order calls for "equivalent" rather than identical order, maintenance, and support
systems, to account for the possibility that access to such systems may involve the use of
different interfaces because of the different requirements of different carriers' computer systems
and because of Ameritech's need to protect the security of its systems. The access must,
however, be equivalently convenient; the provision would not be satisfied by providing
electronic connections to Ameritech's interexchange subsidiary but only fax machines to its
competitors.

22 Among the
restrictions on access to customer information is a provision that the Ameritech interexchange
subsidiary may not have access to customer proprietary network information ("CPNI") as defined
by the FCC, except in the same manner that CPNI is available to unaffiliated carriers. This
would mean, for example, that unlike the Ameritech local exchange operations, the Ameritech
interexchange subsidiary would have to obtain the affirmative consent of the local exchange
operations' customers in order to get local and intraLATA toll usage patterns of those customers.
At one point, Ameritech expressed concern that this restriction would put it at a marketing
disadvantage compared to AT&T, which could target the marketing of one-stop shopping
services to its more lucrative interexchange customers, based on their long-distance usage
patterns, which would be available to AT&T without such affirmative consent because they
would relate to services as to which AT&T was the subscribers' provider. Ameritech concluded,
however, that it could overcome this disadvantage if it could start seeking such affirmative
consent from Ameritech local exchange customers as soon as possible. Since nothing in the
existing Decree would appear to prohibit the seeking of such consent before the trial begins or
even before the proposed order is entered, so long as customers are not misled as to the actual
extent of Ameritech's authority to offer interexchange service, Ameritech withdrew this concern.

23 In some
cases, such as the provision of interexchange and intraLATA toll services by the interexchange
subsidiary (¶¶ 41, 45) and the provision of Centrex service to business customers (¶ 43), the
proposed order provides for the offering of such services immediately upon the commencement
of Ameritech's authority to offer interexchange telecommunications, because other carriers are
already offering such services on a "one-stop-shopping" basis.